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We offer cloud-based accounting solutions. Using good technology saves time. With the power of cloud accounting in your hands, you can access accurate real-time data on the go, accept instant payments and even automate repetitive tasks like invoicing. Fast, easy, touch-of-a-button software can make a real difference to the way you run your business.
C-19 Grant funding for business
C-19 Time to pay agreement
C-19 Loan Funding
C-19 VAT Deferred Payments
C-19 Business rates
C-19 Company Directors & Shareholders
C-19 IR35 & Off-payroll working
C-19 Insolvency & Directors
C-19 Self-employment income support scheme (SEISS)
C-19 Landlords & tenants
C-19 Late payment interest rate
C-19 Reduced rate VAT
C-19 Deferring Income Tax payments
C-19 Working from home
C-19 Future Fund loan scheme
C-19 Recovery Loan Scheme
C-19 Job Support Scheme - on hold
C-19 Job Retention Bonus - on hold
C-19 Restart Grant Scheme opened
Employer-provided PPE & testing
C-19 Test & trace/isolation support
... a digital firm using the best tech to help our clients
Welcome to Adrian Mooy & Co Ltd
like yours grow and be more profitable.
We offer a personal service and welcome new clients.
We are a firm of Chartered Certified Accountants
and tax advisors in Derby helping businesses
From start-up to exit & everything in-between.
Whether you’re struggling with company formation,
Helping you grow your business
Helping you keep more of your income
We understand your needs
Call us on 01332 202660
annual accounts and taxation, payroll or VAT you can
count on us at every step of your business’s journey. For
VAT & payroll please contact us.
If you are looking for a Derby accountant then please contact us.
If you are starting your own business, running it as a sole trader is the quickest and easiest way to do it. However, you will have unlimited liability which means you are personally responsible for business debts.
Another important aspect is that you are taxed on all the profits with little opportunity for tax planning. This is why most businesses will incorporate as profits increase.
We can support you through business registration and provide advice on all aspects of tax including:
◦ Accounts for HMRC ◦ Self assessment ◦ VAT returns ◦
◦ Payroll services ◦ Tax planning ◦
Partnerships are similar to sole trades, except that they are used when more than one person owns the business.
Each profit share is determined by the partners and best practice is to record this in a partnership agreement.
With partnerships each partner has joint and several liability for the debts of the partnership, so that if one partner cannot pay their share of any business debts, the debt will fall on the other partners.
Setting up a partnership agreement from the outset is essential.
Corporate tax planning can result in significant improvements in your bottom line. Our services will help to minimise your corporate tax exposure.
We are a member firm of the Association of Chartered Certified Accountants.
Self assessment tax returns are becoming increasingly complex and failing to submit your return on time, or correctly, can result in substantial penalties.
We use the latest tax software to ensure that tax returns are completed efficiently, accurately and on-time.
Self assessment: Taking
away the hassles of tax
We provide a comprehensive personal tax compliance service for individuals that includes:
Invoicing your contracting work through a limited company is tax efficient. We will advise you on how to structure your contract to minimise IR35 risk. We will ensure you claim all the expenses that you are entitled to and work out if you can save money by joining the VAT Flat Rate Scheme. We will complete your accounts and tax returns and provide you with clarity over your tax payments.
Included in the service • IRIS KashFlow + Snap • Annual accounts • Corporate tax return • Personal tax return • Payroll • Dividend administration • VAT returns • Contract reviews • Dealing with HMRC
VAT • is one of the most complex tax regimes imposed on business. We provide a cost effective service including assistance with registration & completing your returns.
Payroll • Administering your payroll can be time consuming. We provide a comprehensive payroll service.
Your Payroll Solution
Construction Industry Scheme • CIS returns & payments
Book-keeping • Maintenance of accounting records
Provision of management accounts
For more about these services please contact us.
Keeping the Books
If your business does not require a statutory audit then our Assurance Service will provide reassurance that your accounts stand up to close scrutiny from your bank or other finance providers.
Work is tailored to your specific requirements and the level of confidence that you are looking to achieve and will provide credibility to your accounts by the issuing of an assurance review report.
Adrian Mooy & Co is a registered auditor with the Association of Chartered Certified Accountants.
We strive to provide an auditing service that adds more value than merely the statutory compliance requirement of an audit.
We tailor the audit to meet your circumstances and needs. Using the latest techniques and software we deliver a cost-effective audit that provides real value.
Before starting out you may need help with business planning, cash flow and profit & loss forecasts.
You may also want help identifying the best structure for your business. From sole trades and partnerships to limited companies and limited liability partnerships, we have the experience to advise on the best solution for you both operationally and from a tax point of view.
We also advise on accounting software selection, profit improvement, profit extraction & tax saving.
If you wish to know more about our Business Start-up service please contact us on 01332 202660.
Accountancy and taxation of property is a specialist area. We have the expertise and experience to work effectively with private landlords and property investors. We deal with self-assessment tax, accounts preparation & tax advice for all aspects of property portfolios.
Whether you are a first time buy to let landlord or a long established developer we will discuss and understand your situation in order to advise and recommend the most appropriate medium through which to carry out your property investments. We will guide you through the accounting and tax issues and help you to plan effectively.
We take the time to explain your accounts to you so that you understand what is going on in your business.
Up to date, relevant and quickly produced management information for better control.
As part of our accounts service we prepare your annual accounts and complete yearly personal and business tax returns.
As your year-end approaches we will agree a timetable with you for completion of the accounts that minimises disruption to your business and leaves no late surprises when it comes to your tax liabilities.
We can also prepare management accounts to help you run your business and make effective business decisions. Management accounts are also very useful when approaching lending institutions when no year end accounts are available. We offer:
For a meeting to discuss your requirements please call us on 01332 202660.
We understand the issues facing owner-managed businesses.
We provide advice on personal tax & planning opportunities.
Running a small business places many demands on your time. We can help lift the load with our complete payroll service.
Designed to ease your administrative burden, our service removes what is often a time consuming task, leaving you free to concentrate on managing your business.
We can also prepare your benefits and expenses forms and advise you of any filing requirements and national insurance due. Benefits and expenses can be a complicated area and knowing what to report can be tricky.
We can file all your in-year and year end returns with HMRC and provide you with P60s to distribute to your employees at the year end.
We also offer a solution to meet your auto-enrolment obligations.
Businesses dealing with the requirements of VAT legislation will agree that this is often a complex area.
Our compliance services offer support for all stages of completing your VAT returns, whether you need advice on the treatment of specific transactions or have produced your records and would like verification that they are correct.
We can also advise on the pros and cons of voluntary registration, extracting maximum benefit from the rules on de-registration and the Flat rate VAT scheme.
Our consultancy service guides you through the intricacies of the legislation, pinpointing areas where you may be able to relieve or partly relieve the cost of VAT for your business, for example when purchasing new equipment or undertaking new projects such as property development.
For a meeting to discuss VAT and obtain further advice please call us on 01332 202660.
We can conduct a full tax review of your business and determine the most efficient tax structure for you.
We give personal tax advice to a wide variety of individuals, including higher rate tax payers, company directors & sole traders.
We can assist with:
For a meeting to discuss your requirements please call us on 01332 202660.
Understand your needs
Firstly we listen and gain an understanding of your business and what you are aiming to achieve.
We seek your opinions on the service we provide and respond to feedback in order to upgrade and improve what we do.
Build a relationship
Success in business is based around relationships and trust. Our objective is to develop and build strong relationships with our clients, based on two way trust and respect.
Confirm your expectations
Our aim is to help you maximise your business potential and we tailor our service to meet your requirements and agree a timetable for delivering them.
Communication is important to the success of any commercial venture. It is therefore a vital part of our work with you, sharing the knowledge and ideas that help you to realise your ambitions.
Understand your needs
Confirm your expectations
Build a relationship
Straightforward and easy to deal with Adrian Mooy & Co provide an efficient, friendly and professional service - payroll, tax returns, annual accounts and VAT returns are always done on time. Eddie Morris
Call us on 01332 202660
Reclaiming VAT on staff homeworking allowances
You’re downsizing your office and have asked a few staff to permanently change to homeworking. You’ll pay them a one-off allowance towards the cost of setting up their home workspace. Can you reclaim the VAT they incur?
Is it a business expense?
Bar-room accountants like to suggest that “putting it through the business” will get you a tax deduction for a wide variety of expenses. In practice, this has no bearing on your right to tax relief or to reclaim VAT. The basic rule for VAT is that it can only be reclaimed if the expense had a business purpose. Furthermore, the expense must be linked to VATable supplies your business makes.
VAT paid which results in exempt supplies, or is linked to non-business or private use, can’t be reclaimed even if it benefits your business.
Example. Hugh is a solicitor and keen golfer. He puts his club membership fees through his business as he says golf helps generate contacts and get more clients for his legal practice. Whether or not this is true is irrelevant. The purpose of the expenditure is a private one and so the VAT paid on the membership fee can’t be reclaimed.
Evidence of VAT paid
An allowance paid by your business to one of its employees may or may not meet the basic rule for VAT claims. Working for now on the assumption that it does, before you can reclaim it you’ll still need evidence, usually a valid invoice or receipt which shows that VAT has been paid.
Receipts and invoices in an employee’s name are, contrary to common belief, acceptable to HMRC as evidence as long as they are passed on to you by the employee. It’s advisable to get your employee to formalise this by attaching the invoices etc. to a corresponding expenses claim.
Who received the supply?
If an allowance you pay an employee is used by them to buy goods for their new home office, e.g. a desk, chair, shelves, etc. it’s important that ownership of these items belongs to your business. You should therefore make this position clear to the employee.
If ownership is with your employee it’s they and not your business who has received the supply and so the basic rule mentioned isn’t met and you won’t be entitled to reclaim the VAT.
HMRC’s view is that if you pay an employee an allowance which they use to decorate or improve their home, you can’t reclaim the corresponding VAT. It’s a private expense because the decoration is attached to the property which belongs to the employee and so they own it.
If the cost of home decoration, or any other purchase, counts as a taxable benefit in kind for income tax purposes, it makes the expense a business rather than a private one because it counts as part of your employee’s remuneration, which is a business expense. In that case, you can reclaim the VAT but you’ll need to account for VAT on the value of private use, unless it is incidental to the business use.
You can reclaim VAT on expenses incurred by your employees for creating a home workspace. You must have the original receipts and invoices to show that VAT has been paid. Ask your employees to attach them to an expenses claim. If there’s any private use of the home office, you might need to account for VAT on this.
Is it time to add fuel to your benefits package?
Company cars continue to be a popular benefit in kind. Conversely, employer-paid-for fuel has a poor reputation for resulting in disproportionately high tax bills. Is this still justified or might it be time for another look?
Car versus car fuel
The calculation of tax and Class 1A NI on company cars provided as a benefit in kind is reasonably logical. It varies according to the original list price of the car and its CO2 emissions. The second factor is also used in the calculation of the taxable benefit where the employer pays for your fuel for private journeys made in a company car. However, the other factor has no link to the value of the fuel but is a fixed amount set by the government each year. For 2021/22 it’s £24,600. This can lead to some eye-watering tax and NI bills.
Example. Dave, a higher rate taxpayer, is the sole director and shareholder of Acom Ltd. It provides him with a company car - currently a five-year-old BMW with CO2 emissions of 178g/km. Acom also pays for Dave’s fuel for private journeys. The factors for working out the car fuel benefit are 37% (based on the car’s CO2 emissions) and the fixed amount of £24,600. This means Dave’s tax bill for having his car fuel bill paid for is £3,640 (£24,600 x 37% x 40%). Assuming fuel is £1.30 per litre and Dave gets 34 miles to the gallon from his BMW, he would have to drive 20,940 miles on private journeys before he would see any financial advantage from the arrangement.
The position is actually worse than this as Acom will have to pay Class 1A NI of £1,256 (£24,600 x 37% x 13.8%) for providing the benefit. A cost to Acom is a cost to Dave because he owns the company. This means he would have to drive considerably more than 20,940 miles before the car fuel benefit was a worthwhile perk.
The good news for Dave is that he can avoid the tax and NI bills on the car fuel by reimbursing Acom for the cost of the fuel. This is known as “making good” the benefit, and Dave can do it any time up to and including 6 July following the end of the tax year. This gives him time to work out if he’s driven enough private miles to make the benefit worthwhile.
Time to change?
Dave has decided to change his company car for a hybrid with CO2 emissions of 44g/km and an electric range of 40 miles. Having experienced the horrendous tax and NI bill he’s decided that Acom will not pay for fuel for private motoring, or if it does he’ll make good the cost and so avoid the tax and NI charges. However, it might be worth him reconsidering this.
The percentage factor for car and car fuel benefits for hybrid cars is much lower than for petrol and diesel vehicles.
Example. To make a like-for-like comparison with our previous example we’re using the figures for 2021/22 and assuming the hybrid car and fuel for private mileage was provided for the whole tax year. The tax and Class 1A bill for car fuel benefit would be £688 (£24,600 x 7% x 40%) and £237 (£24,600 x 7% x 13.8%) respectively. The tax and NI looks much more reasonable. However, the use of the car in electric mode will boost the MPG considerably and so Dave’s petrol costs will be lower. He should still therefore make the calculation after the end of the tax year to determine if making good the cost of fuel is a good option. Note that there’s no fuel benefit if Acom pays Dave’s electricity bill for charging his new car. Instead, the taxable amount is the cost to the company.
The tax and Class 1A NI bills for hybrid cars are significantly lower than for those powered only by fossil fuels. This can make car fuel benefit a tax-efficient perk, but it can depend on the ratio of private miles driven using fossil fuels to electric only.
Making a negligible value claim
Where assets that have become worthless, it may be possible to make a negligible value claim, allowing a loss to be realised which can be set against chargeable gains to reduce the capital gains tax liability. A negligible value claim can be made either on the self-assessment tax return or in writing to HMRC.
Shares of negligible value
Where the claim is for company shares and securities and the company is in liquidation, the following information must be given to HMRC:
a statement of affairs for the company and any subsidiaries;
a letter from the liquidator or receiver showing whether any return will be made to the shareholders;
details of how this decision was reached (for example, a balance sheet where liabilities are significantly greater than assets); and
evidence that no recovery or rescue is likely (for example, a statement that the company has ceased trading).
If a negligible value claim is being made for a company that is not in liquidation or receivership, comprehensive evidence to support the claim that the shares are of negligible value should be provided.
Where the shares are unquoted, HMRC will generally accept that the shares are of negligible value where all the following conditions are met at the date of the claim:
the company is registered in the UK;
the company is not registered as a PLC;
there is capital loss arising from the deemed disposal of shares following the negligible value claim;
the company was in liquidation and insolvent or had ceased trading and had no assets.
HMRC publish a list of quoted shares and securities that they accept as being of negligible value.
Anna purchased 1,000 shares in an unquoted company for £10 each. On 1 May 2021 the company goes into liquidation. Anna successfully makes a negligible value claim, realising a loss of £10,000 which she can set against capital gains in the same or later tax years.
SEISS Action if claiming the 4th grant
Action to take if eligible for the 4th SEISS grant Feb-Apr 2021
Look out for communication from HMRC April 2021
HMRC will be contacting you in mid-April to let you know if you are eligible to claim the 4th SEISS grant for the quarter ending 30 April 2021.
This will be sent by letter, email or within HMRC’s online service and it will advise you of the earliest date you can make your claim.
Before making your claim
To make your claim you will need to gather together the following information:
• Your self-assessment unique taxpayer reference (UTR)
• National Insurance number
• Government Gateway user ID and password
• Your UK bank details including sort code, account number, name on the account and address linked to the account.
You may also need to answer questions about your passport, driving license or other information held on your credit file.
You may need to back up your claim
You will need to keep evidence that your business has suffered reduced activity. For example, business accounts show reduced activity, records of cancelled contracts or appointments, record of any dates you suffered reduced activity due to lockdown or similar government restrictions.
Additionally, you will need to keep details of the following:
• A record of dates you had to close due to government restrictions
• NHS Test and Trace instructions if self-isolating
• NHS instruction to shield
• Test results if diagnosed with coronavirus
• Letters from school regarding closures that required you take on additional child care
Making your claim
You can only apply online, and the online service is timed to open from late April 2021. Your letter from HMRC will advise you of the earliest date you can apply.
You must make the claim personally, we cannot do this for you.
Once you have completed the claims process you should receive your grant within 6 days.
We can help
Although we cannot directly make claims for clients we can help if you are unsure if you should make a claim or you are having difficulty completing the online application process.
Flat rate VAT if you sell used equipment
If you use the VAT flat rate scheme (FRS) the normal rules don’t apply to some types of transaction, for example, if you sell an item of equipment which you’ve used in your business. How should you record the transaction and account for any VAT?
Flat rate scheme purchases
As you’re probably aware, the VAT flat rate scheme (FRS) can be used by businesses until their annual turnover exceeds £230,000. The scheme doesn’t affect whether and how much VAT you charge but allows you to keep some of it (by accounting for a lower percentage) rather than pay it to HMRC with your VAT return. In exchange, you aren’t allowed to reclaim VAT on your purchases, except for VAT paid on capital assets which cost you more than £2,000 (including VAT).
You can recover VAT for a group of capital assets purchased from the same supplier at the same time if overall they exceed the £2,000 limit. For example, four new desks for your firm’s office costing £520 each.
VAT when you sell capital assets
Usually, a registered business that sells a capital asset must charge the purchaser VAT and account for it to HMRC. There are exceptions, essentially where you weren’t entitled to, and didn’t reclaim, the VAT you paid on the purchase. For example, VAT on the cost of a car used for some private travel. These rules apply to all registered businesses including those which use the FRS.
Accounting for VAT
Where you’re required to charge VAT, you’ll need to account for it on your quarterly return in one of two ways as shown by the following examples.
Example 1. Gary is a builder who uses the FRS. He bought a van for £3,000 plus VAT of £600. He recovered the VAT through his quarterly returns. He sells the van for £1,000 plus VAT of £200. This is a sale outside of the FRS and so he must account for £200 in Box 1 of his next return and include the net sales figure of £1,000 in Box 6. The same rule for working out and reporting the VAT would apply if Gary had bought the van (regardless of the price he paid) before joining the FRS and reclaimed the VAT under the normal rules.
Example 2. While using the FRS Verity bought a packaging machine for her business for £1,500 plus VAT of £300. She was not entitled to reclaim the VAT because the purchase price was less than £2,000. She sells the machine for £500 plus VAT of £100. This counts as part of her normal FRS sales. Assuming her FRS percentage is 12%, Verity must include VAT of £72 ((£500 + £100) x 12%) in Box 1 of her return and include £572 in Box 6.
The VAT treatment of a car can be problematic if you sell it while you’re using the FRS and have not reclaimed VAT on the purchase, which is rarely allowed. Even though you do not charge the buyer VAT you must account for it at the FRS rate in the same way as in Example 2.
If the amount you’re asking for the car is a significant proportion of your turnover, you might be better off leaving the FRS to avoid the VAT. You can rejoin it after twelve months.
To prevent overpaying VAT, make sure your bookkeeper has all the information they need about a capital asset to decide how to report it on your VAT return if you sell it.
Tax consequences of 'illegal' dividends
Dividends can only be declared out of a company’s available undistributed profits, and if the payments are to be legal then the correct administrative procedures need to be followed. If a director sanctions illegal dividend payments, there can be significant tax for both the individual concerned and the company even if the director was unaware of the non validity of the dividend at the time.
Just because the company's bank account is in credit does not necessarily mean that sufficient profit has been made to cover the dividend payment and it is the amount of 'retained profit' that needs to be calculated whenever declaring a dividend.
‘Retained profit’ is defined in the Companies Act 2006 as being ‘accumulated realised profits less ....accumulated, realised losses'. Therefore, a dividend can be paid in a loss-making period provided that there are sufficient 'distributable'/retained profits brought forward making an overall profit. Conversely a dividend cannot be paid if a profit had been made in an accounting period but retained losses brought forward mean that the overall result is a loss.
Tax implications - Shareholder
If a dividend is declared and there was insufficient retained profit at the time such that the dividend was 'illegal', then the dividend is treated as void and the shareholder is treated as not having received a distribution. Where the recipient shareholder knows or should have known that a dividend (or part thereof) is illegal, that shareholder is liable to repay the dividend (or the proportion that exceeds available reserves) to the company if it has already been distributed. It would be difficult for an active director/shareholder to state that he or she did not know that a dividend should not have been paid (this might not necessarily be the case if the director/shareholder was not that involved with the company). Indeed, HMRC's Corporation Taxes Manual at 5205 states that ‘when dealing with private companies controlled by directors who are shareholders, such a member [shareholder] ought to know the status of the dividend’.
If the dividend is not repaid and the shareholder is also a director or employee of the company, the company will be deemed to have made a loan to the shareholder. As it is unlikely that interest would have been paid, this deemed loan will trigger a benefit-in-kind under the rules for taxable loans to employees; a notional interest rate being charged (currently 2.5% per annum), on which the employee will be taxable should the loan be more than £10,000 at any time in the tax year. P11D forms will need to be completed to account for the ‘beneficial interest’ on loans of more than £10,000. As with all P11D benefits, Class 1A National Insurance will need to be paid by the company on the benefit.
Tax implications - Company
HMRC would probably argue that the dividend represents a 'loan to a participator', on which the company is liable to a tax charge under CTA 2010 s 455. Such a charge arises when a company lends money to its directors or employees and the loan is not repaid within nine months and one day of the accounting year end.
The rate of tax payable is the same as the higher 'dividend tax' rate of 32.5% on the gross amount paid. This amount is payable even if the company is making a loss and there is no corporation tax due but only if the loan is outstanding at the due date of corporation tax.
To cancel this charge the loan needs to be repaid or written off by the due date of nine months and one day after the year-end. Once the loan is repaid or written off, the s455 tax will also be repaid nine months after the accounting end date in which the repayment is made; partial repayments attracting a pro rata refund.
Showing illegal dividends in the company accounts can make the company look insolvent with negative balances on the balance sheet; this can affect the company’s ability to gain credit from a lender or suppliers and may breach current agreements - it may also provide HMRC with an excuse to start an enquiry.
Amend your PSA for Covid-19 related benefits
A PAYE Settlement Agreement (PSA) enables an employer to meet the tax on certain benefits and expenses on the employee’s behalf. This can be useful to preserve the goodwill nature of a benefit.
Not all benefits are suitable for inclusion within a PSA. To qualify a benefit must fall into one of the following categories:
the benefit is minor;
the benefit is provided irregularly; or
the benefit is provided in circumstances where it is impractical to apply PAYE or to apportion the value of a shared benefit.
A PSA can be used, for example, to meet the tax liability on the provision of an annual party that falls outside the associated tax exemption. Benefits that are exempt from tax do not need to be included.
The tax and National Insurance payable on items included within a PSA for 2020/21 must be paid by 22 October 2021 where payment is made electronically, and by 19 October 2021 otherwise.
An enduring agreement - Once as PSA has been set up, it remains in place until cancelled or amended by the employer or by HMRC. Existing PSAs should be reviewed each year to ensure that they remain valid.
Amending the PSA
If a PSA needs to be altered, this must be done by 6 July following the end of the tax year to which it relates.
The Covid-19 pandemic changed the way in which employees worked and may have changed the mix of benefits that were provided. Where a PSA needs to be amended in light to take account of Coronavirus-related benefits provided in the 2020/21 tax year, this must be done by 6 July 2021.
Normally, HMRC would issue a new P626 (the PSA) when a PSA is amended. However, where amendments to the PSA relate solely to Covid-19 changes, rather than issuing a new P626, they will instead issue an appendix to the existing PSA.
Covid-19 exemptions - To remove the tax charge that would otherwise arise, a number of limited-time exemptions have been introduced in respect of Coronavirus-related benefits. These include an exemption for the provision of Coronavirus antigen tests, and also any reimbursement of the cost of the test where this is initially met by the employee.
Where employees have worked at home during the Covid-19 pandemic and have bought equipment to enable them to do so, any reimbursement by the employer is also tax-free, as long as the provision would fall within the exemption for accommodation, services and supplies if provided directly by the employer.
Coronavirus-related benefits that fall within the time-limited exemptions do not need to be included within a PSA. However, consideration may be given to adding any non-exempt benefits made available to employees during the pandemic to the PSA (for example, antibody tests), as long as they meet the qualifying conditions for inclusion.
A new PSA - If a PSA is not already in place, should an employer wish to set one up to deal with taxable benefits provided as a result of the Covid-19 pandemic, if the PSA is to have effect for 2020/21, it must be agreed with HMRC by 6 July 2021.
Off-payroll workers miss out on statutory pay
Off-payroll and statutory pay.
Since 6 April 2021 the responsibility for deciding if IR35 applies and accounting for the resulting tax and NI, shifted from the workers to the businesses etc. (except for SMEs) they work for. This is bringing more workers within the PAYE tax and NI net and potentially entitlement to statutory payments such as maternity pay. The new responsibility on businesses etc. paying off-payroll workers does not make them liable for statutory pay, but workers may be entitled to them through their own companies etc.
Example. Jane owns a company through which she provides services to several clients. Some work is subject to the off-payroll rules and her company is paid for it net of PAYE tax and NI, which it passes to Jane. The off-payroll NI (and tax) won’t show in Jane’s company’s payroll records. However, it does mean that if she doesn’t work because of illness she might qualify for statutory sick pay.
HMRC has issued new guidance on how Jane and her company should tackle such situations and work out if and how much statutory pay she is entitled to.
If you work through your own company or other intermediary and your clients deduct tax and NI under the off-payroll rules, it might entitle you to statutory payments such as sick pay. Refer to HMRC’s new guidance on how to calculate this.
Extracting profits from a property company
Running a property business through a limited company rather than as an unincorporated business may be an attractive proposition; at 19% the rate of corporation tax is lower than the basic rate of income tax and interest and financing costs are fully deductible in computing taxable profits. However, the tax bill on the company is not the end of the story – if profits are required outside the company, they will need to be extracted, and this may come at a further tax cost.
Take a salary
If your personal allowance has not been utilised elsewhere, it can be tax efficient to take a small salary. As long as the salary is at least equal to the lower earnings limit (set at £6,240 for 2021/22), paying a salary will ensure that the year is a qualifying year for state pension and contributory benefits purposes.
The optimal salary will depend on whether the employment allowance is available to shelter employer’s National Insurance contributions. Where the allowance is not available, as will be the case if the company has one only one employee who is also a director, the optimal salary is equal to the primary threshold of £9,568. If the employment allowance is available, it is tax efficient to pay a higher salary equal to the personal allowance of £12,570.
Once a salary at the optimal level has been paid, it is more tax efficient to take further profits as dividends, than to pay a higher salary. The dividends will be tax-free to the extent that they are covered by any unused personal allowance and the dividend allowance, which is set at £2,000 for 2021/22. Once the allowances have been used up, dividends are taxed at 7.5%, 32.5% and 38.1% where they fall, respectively, in the basic rate, higher rate and additional rate bands.
There are some rules which govern the payment of dividends. They can only be paid out of retained profits (on which corporation tax has already been paid) and must be paid in accordance with shareholdings (although the use of an alphabet share structure allows for flexibility).
Other options for extracting profits from the property company include the provision of benefits in kind, which can be tax efficient where the benefit is exempt from tax and National Insurance, the payment of rent if the business is run from home and making pension contributions on the director’s behalf.
NL Wage and NM Wage changes from April 2021
Under the minimum wage legislation, workers must be paid at least the statutory minimum wage for their age. There are two types of minimum wage – the National Living Wage (NLW) and the National Minimum Wage (NMW). From 1 April 2021, as well as the usual annual increases, the age threshold for the National Living Wage is reduced.
National Living Wage - The NLW is a higher statutory minimum wage payable to workers whose age is above NLW age threshold. Prior to 1 April 2021, it was payable to workers age 25 and above. From 1 April 2021, the NLW age threshold is reduced; from that date it must be paid to workers aged 23 and above.
National Minimum Wage - The NMW is payable to workers who are below the age of entitlement to the NLW. Prior to 1 April 2021, the NMW applied to workers above compulsory school leaving age and under the age of 25; from 1 April 2021, the NMW must be paid to workers under the age of 23 and over the school leaving age.
There are three NMW age bands:
Workers aged 21 and 22 (prior to 1 April 2021, workers aged 21 to 24).
Workers aged 18 to 20.
Workers aged 16 and 17.
Apprentices - There is also a separate NMW rate for apprentices. It is payable to apprentices under the age of 19 and also to those who are over the age of 19 and in the first year of their apprenticeship.
Accommodation offset - Employers who provide their workers with accommodation are able to pay a lower minimum wage to allow for the cost of the accommodation provided. The amount that you are obliged to pay is found by deducting the ‘accommodation offset’ from the appropriate minimum wage for the worker’s age. The daily accommodation offset rate can be deducted for each full day for which accommodation is provided. For these purposes, a day runs from midnight to midnight. The weekly accommodation offset rate is seven times the daily rate.
Rates from 1 April 2021
NLW: Workers aged 23 and above £8.91 per hour
NMW: Workers aged 21 and 22 £8.36 per hour
NMW: Workers aged 18 to 20 £6.56 per hour
NMW: Workers aged 16 and 17 £4.62 per hour
NMW: Apprentice rate £4.30 per hour
Accommodation offset £8.36 per day £58.52 per week
Check you are paying the correct rates
Employers should ensure that the amounts that they pay workers on the NLW or NMW from 1 April 2021 are in line with the new rates. They should also ensure that they have processes in place to identify when a worker moves into a new age bracket. From 1 April 2021, this will include workers aged 23 and 24 who will be entitled to the NLW from that date.
Can you claim SEISS 4th & 5th payouts during 2021?
If you commenced self-employment after 5th April 2019
If you started your self-employment after 5 April 2019, you were denied support under this scheme from the first three quarterly payouts to 31 January 2021.
The good news is that due to lobbying by tax professionals and self-employed support groups the SEISS is being opened to traders who commenced after 5 April 2019. However, there is an additional hurdle to jump before you can make a claim; your tax return for 2019-20 needs to have been filed by midnight 2 March 2021.
Additionally, your business must be adversely affected by the pandemic and your profits from self-employment must be at least 50% of your income and less than £50,000.
If you commenced self-employment on or before 5th April 2019
If you qualified for the first three grants, you should qualify for the further grants due this year unless your circumstances have changed, for example, if you are no longer adversely affected by COVID disruption.
For those of you who may be claiming for the first time, you will need to claim using your online tax account. HMRC should advise you when the claims process is open for business.
If claiming the fourth grant – 1 February 2021 to 30 April 2021
The fourth grant under the scheme covers February to April 2021. It is worth three months’ average profits capped at £7,500 and can be claimed from late April.
If claiming the fifth and final grant – 1 May 2021 to 30 September 2021
The fifth and final grant covers the period from May to September 2021. The amount of the grant will depend on the impact that Covid-19 disruption has had on your profits.
The final grant can be claimed from late July.
There is a potential misfit in this fifth grant. Although it covers a five-month period (May – September 2021) the actual payout for this period is based on three months. What about the other two months?
NIC and company directors
Special rules apply to company directors when it comes to calculating their Class 1 National Insurance liabilities.
Why the rules
Directors, particularly of personal and family companies, can control how and when they are paid and, in the absence of special rules, would be able to reduce their Class 1 National Insurance liability by manipulating the earnings period rules. The rules circumvent this.
Annual earnings period
Company directors have an annual earnings period for National Insurance regardless of their actual pay frequency. This means that if they do not opt to apply the alternative arrangements, their National Insurance liability is calculated cumulatively by reference to the annual thresholds.
For 2021/22 these are as follows:
A director is paid £8,000 a month. In month 1, he pays no National Insurance as his earnings are below the annual primary threshold of £9,568.
In month 2, his earnings for the year to date are £16,000. By applying the annual thresholds, his total liability on his earnings to date of £16,000 is £771.84 (12% (£16,000 - £9,568)). As he paid no National Insurance in month, his liability for month 2 is £771.84.
For months 3 to 6 inclusive, his earnings for the year to date fall between £9,568 and £50,270. Consequently, he pays employee’s National Insurance at 12% on his earnings for the month of £8,000, equal to £960 each month.
In month 7, his earnings for the year to date are £56,000 (7 months @ £8,000 a month), on which total contribution of £4,998.84 (12% (£50,270- £9,568)) + 2% (£56,000 - £50,270)) are due. He has already paid £4,611.84 (£771.84 + (4 x £960)), leaving £387 due for the month.
As his earnings for the year have now exceeded the upper earnings limit, he will pay National Insurance at the rate of 2% of all future payments – a liability of £160 per month.
Applying the annual earnings period rules means that the contribution liability falls unevenly throughout the year. The liability for the year is £5,798.60 ((12% (£50,270 - £9,568) + ((2% (£96,000 - £50,270))).
As seen in the example above, calculating the liability by reference to the annual thresholds on a cumulative basis each time the director is paid means that their pay is uneven throughout the year. To overcome this, the director can opt for their National Insurance to be calculated throughout the year on their earnings for each earnings period using the relevant thresholds for the earnings period, as for employees who are not directors, with an annual recalculation on an annual basis at the end of the year.
If this basis is adopted, the director in the above example would pay National Insurance of £483.26 (12% (£4,189 - £797)) + (2% (£8,000 - £4,189))) each month for months 1 to 11, with a final payment of £482.74 in month 12.
Over the course of the year, the annual liability (£5,798.60) is the same which-ever method is used, but collected differently.
Directors can choose the method that suits them best.
Can you extract cash to cover your living expenses?
If you operate through a limited company, for example as a personal or family company, you will need to extract funds from your company in order to use them to meet your personal bills. There are various ways of doing this. However, a popular and tax efficient strategy is to take a small salary which is at least equal to the lower earnings limit (set at £6,240 or 2021/22) to ensure that the year is a qualifying year for state pension and contributory benefits purposes, and to extract further profits as dividends.
However, this strategy requires the company to have sufficient retained profits from which to pay a dividend. If the company has been adversely affected by the Covid-19 pandemic, it may have used up any reserves that it had. As dividends must be paid from retained profits, if there are none, it is not possible to pay a dividend.
Are there other options for extracting funds to meet living expenses?
Pay additional salary or bonus
Unlike a dividend, a salary or bonus can be paid even if doing so creates a loss – it does not have to be paid from profits. However, this will not be tax efficient once the salary exceeds the optimal level due to the National Insurance hit and the higher income tax rates applicable to salary payments.
Take a director’s loan
If it is expected that the company will return to profitability, taking a director’s loan can be an attractive option. Depending when in the accounting period a loan is taken, a director can benefit from a loan of up to £10,000 for up to 21 months free of tax and National Insurance. If the company has returned to profitability within nine months of the year end, a dividend can be declared to clear the loan in time to prevent a section 455 tax charge from arising. If the account is overdrawn at the corporation tax due date nine months and one day after the year end, a section 455 tax charge of 32.5% of the outstanding amount must be paid by the company (although this will be repaid after the corporation tax due date for the accounting period in which the loan balance is cleared).
Put personal bills through the director’s loan account
Another option is for the company to pay the bills on the director’s behalf and to charge them to the director’s loan account. Again, if the company has sufficient profits to clear the outstanding balance within nine months of the year end, a dividend can be declared to prevent a section 455 tax charge from arising. A benefit in kind tax charge (and a Class 1A National Insurance liability on the company) will also arise if the outstanding balance is more than £10,000 at any point in the tax year.
Provide benefits in kind
Use can be made of various tax exemptions, such as those for trivial benefits and mobile phones, to provide certain benefits in kind in a tax-free fashion.
If the company is run from the director’s home, the company can pay rent to the director for the office space. This should be at a commercial rate, and the director will pay tax on the rental income. However, there is no National Insurance to worry about and the rent can be deducted in computing the company’s profits, even if this creates a loss.
As a bonus, if the extraction policy creates a loss, it may be possible to carry the loss back to generate a much-needed tax repayment.
Furnished holiday lettings
Furnished holiday lettings offer a number of tax advantages over longer lets. One of the key benefits is the availability of capital gains tax reliefs available to traders, including rollover relief and business asset disposal relief.
Business asset rollover relief
Business asset rollover relief is a significant benefit of having a furnished holiday let rather than a standard buy-to-let. It enables the landlord to sell one property and invest in another without crystallising an immediate charge to capital gains tax; instead the gain is ‘rolled over’ and the charge is deferred.
Business asset rollover relief is available on the disposal of a qualifying business where some or all of the proceeds are used to buy new assets.
To qualify for business asset rollover relief certain conditions must be met:
The new asset must be bought in the period running from one year before the sale or disposal of the old asset to three years after.
The business must be trading when the old asset is disposed of and the new asset is acquired.
The old asset and the new asset must be used in the business.
The effect of the relief is that capital gains tax is not payable when the old asset is disposed; instead it is paid on the gain on both the old asset and the new asset on the disposal of the new asset.
Lottie runs a furnished holiday lettings business and owns a holiday cottage in St Ives. She purchased it in 2010 for £150,000 and sells it in June 2021 for £400,000 (net of costs), realising a gain of £250,000. Three months later, she buys a new holiday let in Padstow for £450,000. She claims business asset rollover relief, deferring the capital gains tax on the sale of the St Ives property.
The base cost of the Padstow property is £200,000, being the cost of £450,000, less the rolled over gain of £250,000.
Louise has a buy to let property. She also purchased it in 2010 for £150,000 and sold it in June 2021 for £400,000 (net of costs) realising a gain of £250,000. She plans to buy a buy-to-let in a different location. However, unlike Lottie, she is unable to claim business asset rollover relief and must pay the associated capital gains within 30 days of the sale completion. If she is a higher rate taxpayer, and assuming her capital gains tax annual exempt amount of £12,300 is available, she will have a capital gains tax bill of £66,556 (28% (£250,000 - £12,300) to pay, reducing the proceeds that she has available for reinvestment to £333,444. By contrast, Lottie has the full proceeds of £400,000 available to reinvest.
Partial relief is available if only part of the proceeds from the sale of the old property is reinvested in the new property.
Luke has a furnished holiday lettings business. He sells a holiday let for £300,000 realising a gain of £100,000. He buys a new holiday let for £270,000. £30,000 of the gain of £100,000 is immediately chargeable to capital gains tax. The remaining £70,000 of the gain is rolled over. The base cost of the new holiday let is £200,000, being the cost of £270,000, less the rolled over gain of £70,000.
Relief must be claimed within four years from the end of the tax year in which the new asset was acquired or, if later, the old asset was sold. A claim form is available on HMRC helpsheet HS290.
Women’s state pension error - the tax position
You may have been following the story over the last year about the government error in calculating some married women’s state pensions. It’s estimated that between 70,000 and 100,000 women have been underpaid their pension for the last 20 years. This has raised questions about how HMRC will tax the arrears when they are paid. There was a call for them to be tax free and that HMRC was considering this. As yet there’s been no statement on the matter.
There are special rules for taxing lump sum state pension payments which result from someone choosing to defer their pension, but not for lump sums resulting from a miscalculation of pension entitlement. It seems that the general tax rules will apply. These say that the state pension is taxable for the year it was due to be paid. That means any arrears relating to the period prior to 6 April 2017 are beyond HMRC’s reach. Arrears for later periods should be reported to HMRC which may result in a tax bill. But as any tax will only be a small fraction of the arrears of pension received, this shouldn’t pose too much of a problem for those involved.
The government will be paying arrears of pension to many thousands of married women. HMRC cannot demand tax on the arrears relating to periods prior to 6 April 2017.
Are you getting the most from rent-a-room relief?
If you let part of your home, rent-a-room relief might automatically exempt the rent from tax. This sounds good but it might not be tax efficient. When might the relief not work to your advantage and what steps can you take to counter this?
Rent-a-room relief (RARR) was introduced in the 1990s to simplify the tax reporting requirements for individuals who let part of their home. It achieves this by exempting rental income up to a limit (£7,500 for 2021/22). Where income exceeds the limit there’s no automatic exemption but the £7,500 can instead be claimed as a deduction from the rent received instead of the actual costs of letting.
Example - part 1. Joan owns and lives in a three-bedroom property in a university town. She takes in two students as lodgers. Each has exclusive use of one bedroom and use of the kitchen and living areas of the property. Joan charges each lodger £400 per month (£9,600 per year). This exceeds the RARR limit and therefore the income is not exempt. However, rather than fuss with calculating the proportion of expenses, which Joan reckons would only amount to around £2,500, she can elect to deduct the RARR amount of £7,500 so that she only has to pay tax on £2,100.
For one year Joan only takes in one lodger so she can renovate the other room and make general repairs to the shared areas. As a result her expenses exceed rent meaning she’s made a loss. The trouble is, as the rent fell below the RARR limit it’s automatically exempt from tax and the loss is ignored for tax purposes. If the exemption did not apply Joan could use the loss to reduce tax on the rent for later years, say when she has two lodgers again.
You can disapply RARR so that a loss will not be lost because of the exemption. This requires a special election which stays in force until you revoke it.
Example - part 2. Joan made the election to prevent the RARR exemption applying for the year of the loss, which amounts to £3,000. The following year Joan takes in two lodgers, again at £400 per month. Her income is back to £9,600 and her expenses are £2,500. She therefore revokes her claim for RARR not to apply so that she can claim the £7,500 as a tax deduction. This leaves £2,100 taxable. The good news is Joan can use the loss of £3,000 to reduce the taxable amount to nil and carry forward the remaining £900 of loss to reduce the taxable amount for the next year or, if it’s not needed, later years.
Obtain relief for pre-letting expenses
When starting a new property rental period there will usually be a preparatory phase during which expenses will be incurred. To what extent is relief available for expenses incurred before the property is let?
Start of the property rental business
A property rental business usually starts when the letting first commences. Once the letting has commenced, relief is available for expenses in accordance with the usual rules to the extent that the expense is incurred wholly and exclusively for the purposes of the business and is revenue in nature. Relief for capital expenditure is given in accordance with the relevant rules depending on whether the accounts are prepared under the cash basis or the accruals basis.
The start date is important as it provides the dividing line between pre-commencement expenditure and that incurred in the running of the business.
Relief for pre-commencement expenditure
A landlord may be able to claim relief for expenses incurred for the purposes of a property rental business before the start of that business. Relief is only available if:
The expenditure is incurred within a period of seven years before the date on which the property rental business started.
The expenditure is not otherwise allowable for tax purposes.
The expenditure would have been allowed as a deduction if it had been incurred after the rental business started.
Thus, to be deductible, the expenditure must be revenue in nature and incurred wholly and exclusively for the purposes of the property rental business.
Where relief is available, the qualifying pre-commencement expenditure is treated as if it was incurred on the day on which the property rental business commenced and is deductible in computing the profits for the first accounting period.
Jaz purchases an investment property in January 2021 which he plans to let out. In preparing to let the property, he incurs administration expenses of £1,200 and undertakes repairs costing £3,000. The property is first let on 28 June 2021. Jaz claims relief for the pre-commencement expenses of £4,200, which are treated as if they had been incurred on 28 June 2021 – the date on which the property rental business commenced.
Tax deductions for your buy-to-let property
In between tenants you’re doing some work on your rental property. How you categorise this - repairs or improvements - determines whether or not you’re entitled to an income tax deduction. What factors should you take into account?
In the last decade landlords of residential properties have had to cope with more changes to the tax rules than any other group. The changes have affected the tax treatment of income and outgoings. In this article we will take a close look at repair and improvement costs.
Room for improvement or just repair?
As a general rule, a “revenue” tax deduction can’t be claimed for the cost of improving your property. A revenue deduction reduces the amount of rental income liable to tax. Instead, the cost is “capital” and so deductible when working out the capital gain or loss you make when you sell the property. You might therefore have to wait decades for a tax deduction.
Conversely, the cost of repairing a property is a revenue expense and so reduces the income tax bill on rent for the year of expenditure. Naturally, it’s in your interest to attribute a cost to repairs rather than improvements.
Sometimes the distinction between a repair and an improvement isn’t clear and the tax legislation doesn’t provide any help. For example, if you add a conservatory to your rental property it’s an improvement cost.
But what if you completely replace an existing conservatory that had become dilapidated?
As a rule, an addition to a property, e.g. creating a new room by converting a loft or garage, will always be an improvement.
Partial or total repair?
The replacement of an entire element of a property may be a repair or an improvement. The scale and cost of works aren’t usually a factor. For example, the roof of your property was lost in a storm and replaced with equivalent materials; that would be a repair despite improving the value of the property. At one time HMRC usually argued that a repair that significantly affected the value of a property should be treated as an improvement (and so a capital expense) for tax purposes. These days its approach has softened.
As a rule of thumb, a like-for-like repair or replacement using similar materials to the original counts as a repair regardless of the scale. HMRC’s property income manual (PIM) confirms this. There’s an exception for such expenditure where the repair work is carried out on a property soon after purchase and the cost of the repairs was reflected in the price paid for the property.
Repairing or replacing equipment which is fixed to the property and has effectively become part of the structure, e.g. a heating system including a boiler, is treated in the same way as the structure. For example, a like-for-like replacement boiler and radiators is a repair and the cost qualifies for a revenue deduction . However, if the work included the addition of an extra radiator, the corresponding proportion of the cost would be capital.
Where possible you should categorise works as repairs. As a rule of thumb, a like-for-like repair or replacement using similar materials to the original counts as a repair regardless of the scale. This applies to the structure of the building and to equipment fitted to it such as boilers and water systems.
Expenses and benefit returns for 2020/21
Expenses and benefits returns P11D and P11D(b) for 2020/21 need to be filed by 6 July 2021. Meeting this deadline is important as penalties may be charged for returns that are filed late.
A form P11D must be filed for every employee who has been provided with taxable benefits and/or expenses in the 2020/21 tax year which have not been payrolled or included in a PAYE settlement agreement. Benefits covered by an exemption can be ignored.
The information that is needed in respect of each benefit depends on the nature of the benefit. In many cases, all that is needed is the cost to the employer of providing the benefit, any amount made good by the employee and the resulting taxable amount. However, for some benefits, such as company car and fuel and employment-related loans, more information is required.
The taxable amount will normally be the cash equivalent value. However, where the benefit is made available under a salary sacrifice or other optional remuneration arrangement, the taxable amount should be worked out using the alternative valuation rules, unless the benefit is one of the few to which these rules do not apply.
The P11D(b) is the employer’s declaration that all required P11Ds have been filed, and also the employer’s statutory Class 1A National Insurance return.
When computing the Class 1A liability, it is necessary to take into account taxable benefits within the Class 1A charge returned on the P11D and also any payrolled benefits. If all taxable benefits provided in the 2020/21 tax year have been payrolled (or included in a PSA), there will not be any P11Ds to file; however, a P11D(b) is still required.
Items included within a PSA are not included in the Class 1A National Insurance calculation on the P11D(b) – Class 1B National Insurance contributions are payable instead.
If an employer has not provided any taxable benefits in 2020/21, but did in previous years, and receives either a paper P11D(b) or a P11D(b) reminder letter, they will need to complete a nil declaration online on the Gov.uk website to avoid being charged a penalty.
There are various options for filing P11Ds and P11D(b)s:
using a payroll software package;
using HMRC’s Online End of Year Expenses and Benefits Service;
using HMRC’s PAYE Online Service; or
filing paper forms.
Whichever method is used, the forms must be filed by 6 July 2021. Employees must be given a copy of their P11D or details of their taxable benefits by the same date.
Any associated employer-only Class 1A National Insurance must be paid by 22 July 2021 if paid electronically, or by 19 July 2021 if paid by cheque.
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Adrian Mooy & Co Ltd - 61 Friar Gate Derby DE1 1DJ - firstname.lastname@example.org
Adrian Mooy & Co is the trading name of Adrian Mooy & Co Ltd. Registered in England No. 05770414.
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Registered office: 61 Friar Gate, Derby, Derbyshire, DE1 1DJ